Gujarat High Court
Standard Radiators vs Commissioner Of Income-Tax on 17 March, 1986
Equivalent citations: [1987]165ITR178(GUJ)
JUDGMENT R.C. Mankad, J.
1. The Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal"), has referred to us for our opinion the following question under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") :
"Whether, on the facts and in the circumstances of the case, the mistake rectified by the Appellate Assistant Commissioner could be said to be' a mistake apparent from the record' referred to in section 154 of the Income-tax Act, 1961 ?"
2. The facts leading to this reference are as follows :
The assessee is a registered partnership firm consisting of two partners and the assessment year under reference is assessment year 1966-67, the previous year being the period from November 5, 1964, to July 31, 1965. On July 31, 1965, that is, on the last day of the accounting period, the business of the assessee-firm was transferred to a private limited company called "Standard Radiators (Pvt.) Ltd. (hereinafter referred to as "the company"). The only shareholders of the company were the two partners of the assessee-firm. The assessee-firm disclosed gross profit of Rs. 2,21,720 but showed loss in the profit and loss account so far as the business of radiators was concerned. Apart from this business activity there arose income by way of deemed business profit under section 41(2) of the Act and capital gains as a result of transfer of the assessee-firm's business assets to the company. The Income-tax Officer, while framing the assessment for the assessment year 1966-67, included an amount of Rs. 2,90,750 in the total income of the assessee-firm as capital gains. It is not disputed that the correct figure of capital gains was Rs. 3,00,750 and not Rs. 2,90,750 included in the total income of the assessee-firm. There was thus a mistake of Rs. 10,000 in the computation of capital gains. The Income-tax Officer also found that he had committed a mistake in calculation of deemed business profits under section 41(2) of the Act and in setting off these profits against capital gains. He also found that tax payable by the assessee firm on the capital gains was not determined in the assessment order. The Income-tax Officer sought to rectify these mistakes under section 154(1)(a) of the Act. The assessee-firm opposed the proposed action of the Income-tax Officer to rectify the original assessment order. So far as the proposed action of determining the tax on capital gains was concerned, it was contended on behalf of the assessee-firm that since it was not decided whether or not capital gains taxable in the hands of partnership firm, tax payable on capital gains could not be determined by rectifying the order under section 154 of the Act. The Income-tax Officer, however, rejected the contentions raised on behalf of the assessee-firm and recomputed the total income of the assessee-firm. So far as the computation of business income was concerned, he adjusted the profits under section 41(2) of the Act against the business loss and computed the business loss at Rs. 4,785. This computation is not under challenge in this reference. So far as capital gains were concerned, the Income-tax Officer added Rs. 10,000 and computed the capital gains at Rs. 3,00,000 and determined tax payable thereon by the assessee-firm. The assessee-firm being aggrieved by the order passed by the Income-tax Officer carried the matter in appeal before the Appellate Assistant Commissioner. The only ground which was pressed before the Appellate Assistant Commissioner was that the Income-tax Officer could not have determined the tax payable on the capital gains component of the total income of the assessee-firm under section 154 of the Act. The Appellate Assistant Commissioner relied on the decision of this court in CIT v. Navinchandra Tribhovandas (ITR No. 40 of 1971, decided on September 25, 1973) [1987] 165 ITR 192 (Guj), and held that since the question whether a partnership firm is liable to pay income-tax on capital gains was not determined, the Income-tax Officer could not have determined such tax by rectifying the assessment order under section 154 of the Act. The Revenue did not prefer an appeal against the order of the Appellate Assistant Commissioner.
3. About two and half years after the Appellate Assistant Commissioner upheld the contention of the assessee in the appeal preferred by it is stated above, the decision of this court in CIT v. Hasanali Khanbhai and Sons [1987] 165 ITR 195; [1974] Taxation 36(3)-4 (hereinafter referred to as Hasanali Khanbhai's case), came to his notice. By this decision, it was held that a registered partnership firm was liable to pay tax on the capital gains component of its total income under section 114 of the Act. The Appellate Assistant Commissioner, therefore, issued notice to the assessee-firm proposing to amend his appellate order dated June 30, 1975, by which he had upheld the contention of the assessee-firm that whether or not tax was to be paid on capital gains was debatable and consequently set aside the order of the Income-tax Officer passed under section 154 of the Act. The assessee resisted the proposed action of the Appellate Assistant Commissioner. The Appellate Assistant Commissioner overruled the objection raised by the assessee-firm and held that having regard to the decision of this court in Hasanali Khanbhai's case, he had committed a mistake apparent on the face of the record in partly allowing the assessee's appeal and setting aside the order of the Income-tax Officer determining tax on capital gains. The Appellate Assistant Commissioner, by his order dated March 7, 1978, amended his earlier order dated June 30, 1975, and resorted the order of the Income-tax Officer charging capital gains to tax. Being aggrieved by the order of the Appellate Assistant Commissioner, the assessee-firm carried the matter in appeal before the Tribunal. The Tribunal, by its order dated November 30, 1979, held that the Appellate Assistant Commissioner was correct in rectifying his appellate order dated June 30, 1975 and thus restoring the order dated March 6, 1975, of the Income-tax Officer. The assessee being dissatisfied with the order of the Tribunal, at its instance, the question set out hereinabove ha been referred to us for opinion.
4. The first question that we have to decide is whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was acting within his powers in making the impugned rectification. The second question on which arguments were advanced by learned counsel for the parties is whether the Income-tax Officer could have rectified or amended the assessment order in the manner he had done and if he had no power to pass such rectification order, whether the Appellate Assistant Commissioner could have made the impugned rectification. The Income-tax Officer and the Appellate Assistant Commissioner purported to make the said rectification under section 154 of the Act. That section, to the extent material for our purposed, reads as follows :
"154 (1) With a view to rectifying any mistake apparent from the record -
(a) the Income-tax Officer may amend any order of assessment of refund or any other order passed by him;
(b) the Appellate Assistant Commissioner may amend any order passed by him under section 250 or section 271;...... (2) Subject to the other provisions of this section, the authority concerned -
(a) may make an amendment under sub-section (1) of its own motion, and
(b) shall make such amendment for rectifying and such mistake which has been brought to its notice by the assessee, and where the authority concerned is the Appellate Assistant Commissioner, by the Income-tax Officer also."
5. Section 154 of the Act came up for consideration before the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50. In that case, the Supreme Court has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. It was observed that a decision on a debatable point of law is not a mistake apparent on the record. Therefore, the question to which we have to address ourselves is whether there was a mistake apparent on the record which was on obvious and patent mistake and not something which could be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. The rectification order was passed by the Income-tax Officer on March 6, 1975, and by this order, amongst other things, he sought to correct the mistake of Rs. 10,000 in the computation of capital gains and of determining the tax payable on the capital gains. The argument of the assessee is that it was debatable whether the assessee, a registered partnership firm, was liable to pay income-tax on capital gains and, therefore, it was not open to the Income-tax Officer to determine the tax payable on capital gains. It was not disputed that there was a mistake of Rs. 10,000 in the computation of capital gains and that the Income-tax Officer in the exercise of power conferred on him under section 154 of the Act could have rectified the computation of capital gains by adding Rs. 10,000 to the amount already computed. However, so far as the determination of tax was concerned, as state above, the assessee's contention is that since taxability to capital gains in the hands of the assessee was debatable, the order determining tax on capital gains could not have been passed under section 154 of the Act. Now it is important to note that the date on which the Income-tax Officer passed the order section 154, namely, March 6, 1975, and the question whether capital gains could be taxed in the hands of a registered partnership firm were no longer res integra. This question was settled by the decision of this court in Hasanali Khanbhai's case [1987] 165 ITR 195. This court, in the light of the different provisions mentioned in the judgment and particularly in the light of the definition of the word "person" in section 2(31) of the Act and also the definition of the word "income" in section 2(24) read with the provisions of section 114 and section 182 of the Act and relevant provisions of the Finance Act of each year, held that it was obvious that when considering the total income for the purpose of arriving at the income-tax payable by a registered firm as such on the total income, the amount of capital gains must be included. This decision was rendered by this court on September 25, 1973. In the light of this decision which was binding on Income-tax Officer, it must be held that the Income-tax Officer had committed an error apparent on the face of the record in failing to determine the tax payable on the capital gains which were computed and included in the total income of the assessee.
6. In this connection, we may refer to another decision of this court in Parshuram Pottery Works Co. Ltd. v. D. R. Trivedi [1975] 100 ITR 651. That was a case in which in the course of assessment to wealth-tax for the assessment years 1957-58, 1958-59 and 1959-60, the petitioner company claimed to deduct in the computation of net wealth, a certain amount each year in respect of provision for taxation, but the claim was disallowed on the ground that the amount provided for tax liability did not constitute "debt owed" by the petitioner on the relevant valuation dates within the meaning of section 2(m) of the wealth-tax Act, 1957. The petitioner did not prefer appeals against the orders of assessment. Subsequently, however, the petitioner came to know from a decision given by the Income-tax Appellate Tribunal that the amounts claimed by it in respect of provision for taxation were deductible in computing the net wealth of the petitioner. The petitioner thereupon made applications to the Wealth-tax Officer for rectification of the orders of assessment under section 35 of the Wealth-tax which corresponds to section 154 of the Act on the ground that there was an error apparent on the face to the recorded. The applications were rejected by the Wealth-tax Officer on the ground that there was no error of law apparent on the face of the record in the assessment orders. The petitioner's revision petition to the Commissioner were unsuccessful. The petitioner thereupon approached this court under article 226, of the Constitution and applied for writs to quash the orders refusing to rectify the assessment orders and for a direction to rectify the assessment orders. It was contended for the Revenue that there was no error apparent on the face of the record and also, as the assessee had not preferred appeals from the assessment to Wealth-tax made on the petitioner, in so fat as they disallowed the claim for deduction in respect of the amount of provision for taxation, did no disclose any mistake apparent on the record and, therefore, the Wealth-tax Officer and the Commissioner of Wealth-tax committed no error of law apparent on the face of the record in rejecting the applications of the petitioner for rectification of the assessment orders. It was also strenuously contended that neither the decision of this court in CWT v. Raipur Manufacturing Company Ltd. [1964] 52 ITR 482, nor the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767, was pronounced before the Wealth-tax Officer made the assessment orders in the petitioner's cases and since the law was not yet settled as on the date of the said assessment orders, it could not be said that the assessment orders disclosed any mistake of law apparent on the record. In order words, the submission was that the assessment orders were proper and valid when they were made and merely because the said orders were later found to be erroneous in view of the subsequent judicial pronouncements, the provisions of section 35 would not be attracted and the Wealth-tax Officer would not be justified in rectifying the said orders on the ground that they disclosed a mistake of law apparent on the record. These contentions raised on behalf of the Revenue were rejected by this court and it was held (100 ITR at pages 656 and 657) :
"We are of the opinion that the submission is not well-founded. It is true that the wealth-tax Officer did not have before him the decision of this court in Raipur Manufacturing Company's case [1964] 52 ITR 482, or that of the Supreme court in Kesoram Industries and Cotton Mill's case [1966] 59 ITR 767, when he passed the assessment orders in the petitioner's cases and that both the decisions were given after the assessment orders were made. But these decisions did not enact or make the law in any sense but merely interpreted the expression 'debt owed' occurring in section 2(m) of the Act which was undoubtedly on the statute book at the time when the assessment orders were made by the Wealth-tax Officer. These decisions, in so far as they declared that the amounts claimed by an assessee in respect of provision for taxation are deductible in computing the net wealth of the assessee since they represent 'debt owed' by the assessee within the meaning of section 2(m) of the Act, merely stated what the law had always been and must always be understood to have been. The fact that these decisions were not before the Wealth-tax Officer when he made the orders of assessment in the petitioner's cases has, therefore, no material bearing on the question whether the said orders disclose any mistake apparent from the record. It that be the correct legal position, and we hold that it is, the only conclusion possible is that the assessment orders, in so far as they disallowed the claim of the petitioner for deduction in respect of the amount of provision for taxation, proceeded on a wrong view of the law and the said orders were bad at their very inception, the date on which they were made. The orders of assessment thus disclosed a mistake apparent from the record were liable to be rectified in exercise of the powers conferred under section 35 of the Act. In our opinion, therefore, the Wealth-tax Officer committed an apparent error of law in rejecting the petitioner's application for rectification of the mistake and the commissioner of Wealth-tax likewise committed an error of law apparent on the face of the record in rejecting the petitioner's revision application.
We find further that a least on the data of decision of the commissioner of Wealth-tax rejecting the revision applications of the petitioner directed against the order of the wealth-tax Officer refusing to exercise the powers conferred under section 35 of the Act the decision of this court in Raipur Manufacturing Company's case [1964] 52 ITR 482 (Guj) was already pronounced. The decision of this court in Raipur Manufacturing Company's case was given on October 15 and 16, 1962, whereas the decision of the Commissioner of Wealth-tax in the revision application preferred by the petitioner was given on March 23, 1964. In fact, we find that in the memo of the revision application presented by the petitioner to the Commissioner of Wealth-tax, a copy of which is annexed as 'exhibit B, collectively' to the petition, pointed reference has been made to the decision of this court in Raipur manufacturing company's case [1964] 52 ITR 482 (Guj) and the Commissioner of Wealth-tax was invited to exercise his revisional jurisdiction so as to give effect to the said decision. We are of the opinion that, in these circumstances, it was incumbent upon the Commissioner of Wealth-tax to give effect to the decision of this court in Raipur Manufacturing company's case [1964] 52 ITR 482 (Guj) and inasmuch as he failed to do so, there is an error of law apparent on the face of the record which has altogether vitiated his order."
7. Similar view was taken by another division Bench of this court in Shurid-Geigy Ltd. (Sales Tax Reference No. 2 of 1974, decided on June 28, 1974), in which reliance was placed on the aforesaid decision in Parshuram Pottery Works Company's case [1975] 100 ITR 641 (Guj). The ratio of the decision in Parshuram Pottery Works Company's case [1975] 100 ITR 651 (Guj) will apply to the facts of the instant case. For the reasons stated in the said judgment, it must be held that the Income-tax Officer had committed an error apparent on the face of the record in not determining the tax payable on capital gains when he passed the assessment order. The fact that the decision of this court in Hasanali Khanbhai's case [1987] 165 ITR 195, was not before the Income-tax Officer when he made the assessment order in the assessee's case, has no material bearing on the question whether the said order disclosed any mistake apparent on the record. When this court held that capital gains were taxable in the hands of a registered firm, it merely stated (p. 656 of 100 ITR) :
"What the laws had always been and must always be understood to have been."
8. Therefore, as already observed, it is immaterial that the decision of this court was not before the Income-tax Officer when he made the assessment order. If the capital gains were liable to payment of tax as has been held by this court in Hasanali Khanbhai's case [1987] 165 ITR 195, the only conclusion possible is that the assessment order in so far as it failed to determine the tax payable on capital gains proceeded on a wrong view of law and was bad from its very inception, i.e., from the date on which it was made. The assessment order thus disclosed a mistake apparent on the face of the record and was liable to be rectified in exercise of the powers conferred under section 154 of the Act. In our opinion, therefore, the Income-tax Officer had acted within his powers in rectifying the assessment order and determining the tax payable on the capital gains. Once this conclusion is reached, it is obvious that the Appellated Assistant commissioner committed an error apparent on the face of the record in allowing the appeal filed by the assessee against the rectification order and setting aside the same. It may be recalled that the Appellate Assistant Commissioner interfered with the rectification order passed by the Income-tax Officer on the ground that it was debatable whether capital gains were liable to tax in the hands of a registered partnership firm. The Appellate Assistant Commissioner allowed the appeal of the assessee on June 30, 1975, by which time, as already pointed out above, the decision of this court in Hasanali Khanbhai's case [1987] 165 ITR 195 was available. In the face of this decision which set at rest the controversy whether capital gains were taxable in the hands of a registered firm, the Appellate Assistant Commissioner could no have reversed the decision of the Income-tax Officer and set aside the determination of tax payable on capital gains be the assessee. In allowing the appeal filed by the assessee, the Appellate Assistant Commissioner had acted contrary to the decision of this court which was binding on him. He had, therefore, committed an error apparent on the face of the record which he could have rectified or amended in exercise of the powers under section 154 of the Act. The reasons which we have given for holding that the Income-tax Officer had acted within his powers in rectifying the assessment order apply with equal force in upholding the validity of the order of recctification passed by Appellate Assistant Commissioner. Therefore, for the reasons which we have set out hereinabove, it must be held that the Appellate Assistant Commissioner was within his powers in rectifying his order under section 154 of the Act.
9. Learned counsel for the assessee, however strongly relied on a decision of this court in CIT v. Navinchandra Tribhovandas (ITR No. 40 of 1971, decided on September 25, 1973) [1987] 165 ITR 192 the same date on which the decision was rendered in Hasanali Khanbhai's case [1987] 165 ITR 195 and urged that the facts in that case were on all fours with the facts in the instant case and, therefore, the ration of the decision of this court in that case will govern the instant case. In that case, the assessee was a registered partnership firm and in its income-tax assessment for the assessment year 1964-65, capital gains of Rs. 40,661 was not taken into consideration for the purpose of calculation of income-tax payable by the registered firm under the provisions of section 182 of the Act. Subsequently, on June 18, 1968, the Income-tax Officer thought he had committed a mistake in the original assessment for the year 1964-65 inasmuch as he had not included the capital gains in the income of the firm for the purpose of determining the income-tax payable by the firm. He treated the mistake as a mistake apparent on the face of the record and initiated proceedings under section 154 of the Act by way of rectification. The assessee objected to this both on merits as well as on the legality of the proceedings under section 154 of the Act. The Income-tax Officer, however, rejected the contentions of the assessee and held, both as regards the maintainability of the proceedings as well as on the merits, against the assessee. On appeal, the Appellate Assistant Commissioner dismissed the appeal and upheld the order of the Income-tax officer on both the grounds. The assessee carried the matter in appeal before the Tribunal. The Tribunal held that for the purpose of computing the total income-tax payable by a registered firm under section 182 of the Act, capital gains should no be taken into consideration while computing the total income of the registered firm. The Tribunal also held that the rectification proceedings under section 154 of the Act were not maintainable as there was no mistake apparent on the record. In the view of the Tribunal, the controversy was highly debatable and, therefore, section 154 would not apply. Thereafter, at the instance of the Revenue, two questions were referred for the opinion of this court, one of which was, whether, on the facts and in the circumstances of the case, the rectification order made by the Income-tax Officer under section 154 of the Act was validly passed ? Relying on the decision of the Supreme Court in Volkart Brother's case [1971] 82 ITR 50, this court held that the Income-tax Officer was wrong in holding that there was a mistake apparent from the record of the assessment of the assessee-firm and it was not competent to go to into the true scope of the provisions of the Act in rectification the Act in rectification proceedings under section 154 of the Act. It is pertinent to note that this court considered the validity of proceedings under section 154 of the Act in the light of the position of law as it obtained on the date on which the rectification order was made by the Income-tax officer. At that time, the decision of this court in Hasanali Khanbhai's case [1987] 165 ITR 195, wherein it is held that while computing the total income for the purpose of arriving at the income-tax payable by a registered firm, the amount of capital gains was includible, was not yet pronounced. In other words, the position of law, as to the taxability of capital gains in the hands of a registered firm was not settled and at the time when the assessment order was made as well as at the time when the time when the Income-tax Officer passed the rectification order, it was debatable whether a registered firm was liable to pay tax on capital gains. It was in view of this position which obtained on the date of assessment as also the rectification order that this court, relying on the decision of the Supreme Court in volkart Brothers' case [1971] 82 ITR 50,this court held that the Income-tax Officer was wrong in holding that there was a mistake apparent from the record in making the assessment of the assessee-firm and it was not competent to go into the true scope of the provision of the Act in rectification proceedings under section 154 of the Act. We, therefore, find ourselves unable to agree with learned counsel for the assessee that the facts in the instant case are identical and, therefore, the ratio of the decision in Navinchandra Tribhovandas, case [1987] 165 ITR 192 will govern the instant case.
10. Learned counsel for the assessee next sought to rely on the decision of this court in Lilavatiben Harijivandas Kotecha v. J. V. Shah, ITO [1980] 122 ITR 863. It was urged that since there was a view taken by another High Court contrary to the view taken by this court, a debatable issue arose and in the case of such issue, rectification proceedings under section 154 of the Act were not maintainable. That was a case in which the assessee was a partner in three firms. In one of the firms, two of her minor sons were admitted to the benefits of the partnership while in the other two, three of her minor sons were admitted to the benefits of the partnership. Clause 6 of the partnership deeds of the said two partnership firms was in identical terms. In the earlier portion of the said clause 6, it was stated (headnote) :
"... the minors admitted to the benefits of the partnership shall be entitled to the benefits of the partnership and shall not personally be liable for any obligation of the said firm but their respective share only shall be liable for the obligations of the said firm...."
11. It went on to provide that (headnote) :
"..... pending their respectively attaining the age of majority, their respective shares in the profits of the business shall be accumulated to their respective credits so at to be available to meet their respective share of losses, if any, incurred by the firm at any time during their respective minority provided always that in the event of the accumulation to the credit of the minor, Rasikchandra Dayalbhai, being insufficient for his share of losses, if any, such insufficiency or deficit shall be exclusively borne by the second partner and in the event of the accumulations to the credit of the minors, Narendrakumar Harjivandas Kotecha, Chandulal Harjivandas Kotecha and Rameshchandra Harjivandas Kotecha, the eleventh partner the twelfth partner and the the thirteenth partner respectively, being insufficient for their respective share of losses, if any, such insufficiency or deficit shall be exclusively borne by the third partner (the assessee)."
12. The share of the minor children's losses in the firm was allowed to be set of against the assessee's total income from all sources. Subsequently, the Income-tax Officer issued a notice under sections 154 and 155 of the Act and passed an order of rectification withdrawing the set-off. The order of the Income-tax Officer was confirmed by the Commissioner in revision. The assessee approached this court under article 226, of the Constitution of India and applied for writs to quash the said orders. It was pointed out that in Dayalbhai Madhavji Vadera v. CIT [1966] 60 ITR 551, this court had held that a minor child's loss in a firm cannot be included in the total income of a parent and, therefor, the Income-tax Officer was justified in passing the rectification order. It was, however, urged on behalf of the assessee that the decision of this court in Dayalbhai's case [1966] 60 ITR 551 had no application to the facts of the assessee's case and there was, therefore, error or mistake committed by the Income-tax Officer while making the original assessment. This court, relying on the decision of the Supreme Court in Volkart Brothers' case [1971] 82 ITR 50, held that there cannot be said to be a mistake apparent from the record since the decision on a debatable point of law is not a mistake apparent on the record. The point was held to be debatable on three grounds, namely :
(1) There is scope for discussion, debate and argument as regards interpretation of clause 6 of the partnership deed, (2) When this court rendered the decision in Dayalbhai's case [1966] 60 ITR 551, its attention was not drawn to the circular of the Central Board of Revenue issued as far back as 1944, and (3) If the aforesaid circular dated July 4, 1944, issued by the Central Board of Revenue was brought to the notice of this court particular in the context of the decision of the Supreme Court in Navnit Lal C. javeri v. K. K. Sen, AAC [1965] 56 ITR 198, this court would no have taken the view which it took. Further, other High courts had taken a view contrary to the view taken by this court.
13. It was, therefore, that this court held that there cannot be said to be a mistake apparent from the record since the question on a debatable point is not a mistake apparent from the record at all. In our opinion, this decision cannot be of any assistance to the assessee in the instant case. It was not only on the ground that other High courts had taken a view contrary to the view taken by this court in Dayalbhai's case [1966] 60 ITR 551, that the court held that the question before it was debatable. It was mainly having regard to the Central Board of Revenue's circular of 1944 and clause 6 of the partnership deeds that the court held that the question before the Income-tax Officer was not free from doubt and was debatable. It may further be pointed out that the attention of the court was not drawn to the decision of this court in Parshuram Pottery Works company's case [1975] 100 ITR 651. In that case, it has been clearly held that the taxing authorities were bound by the decision rendered by this court and they were bound to follow the same. If a decision is given contrary to the view expressed by this court, there is an error apparent on the face of the record which not only can be, but should be, rectified or amended under section 154 of the Act.
14. We may also refer to the decision of the Supreme court in East India Commercial Co. Ltd. v. Collector of Customs, AIR 1962 SC 1893. In this decision, Subba Rao J. observed (at pages 1904 and 1905) :
"The Division Bench of the High Court held that a contravention of a condition imposed by a licence issued under the Act is not an offence under section 5 of the Act. This raises the question whether an administrative tribunal can ignore the law declared by the highest court in the State and initiate proceedings in direct violation of the law so declared. Under article 215, every High Court shall be a court of record and shall have all powers of such a court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of fundamental rights and for any other purpose to any person or authority, including in appropriated cases any Government, within its territorial jurisdiction. Under article 227, it has jurisdiction over all courts and tribunal throughout the territories in relation to which it exercises jurisdiction. It would be anomalous to suggest that a tribunal over which the High court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working : otherwise there would be confusion in the administration of law and respect for law and respect for law would irretrievably suffer."
15. In view of this decision of the Supreme Court, the Income-tax Officer and the Appellate Assistant Commissioner were bound to follow the decision of this court in Hasanali Khanbhai's case [1987] 165 ITR 195. If they failed to do so, it would undermine the respect for the law laid down by the High Court and the constitutional authority of the High court and their conduct would, therefore, be apprehended by the principles underlining the law of contempt. Under the circumstances, it must be held that both the Income-tax Officer and the Appellate Assistant Commissioner were within their powers in rectifying the orders in the manner they have done.
16. In the result, we answer the question referred to us in the affirmative and against the assessee. Reference answered accordingly with no order as to costs.